6 Reason to Start a Donor Advised Fund

One of the most effective tools Madison Community Foundation offers for charitable giving is the donor advised fund. These flexible funds have become the fastest-growing vehicle for philanthropy in the United States – and for good reason.

Across the country, donor advised funds continue to expand in both number and impact. According to National Philanthropic Trust, in 2023, there were nearly 1.8 million donor advised funds, holding more than $250 billion in charitable assets. Donors contributed about $59 billion into these funds and recommended nearly $55 billion in grants to nonprofits nationwide. With payout rates consistently above 20%, donor advised funds are a reliable and powerful way for individuals and families to organize their giving and maximize their impact.

So why are donor advised funds so popular?

6 Reasons Why You Might Want a Donor Advised Fund

1. Simplicity and Flexibility

Establishing a donor advised fund is relatively simple, and once it’s in place, you can recommend grants at any time. At MCF, you can open some types of donor advised funds with an initial contribution of as little as $1,000; funds designed for perpetual giving require a minimum of $15,000.

2. Ability to Give a Wide Variety of Assets

Beyond cash, you can donate appreciated public or private stock, real estate, or other non-cash assets. Donating appreciated property often helps avoid capital gains tax while providing a deduction at full fair market value – advantages that are limited with private foundations.

3. Immediate Tax Benefits With Long-Term Giving Options

Contributions to a donor advised fund are deductible in the year you make them, but you can recommend grants to nonprofits at any time. This makes donor advised funds especially useful if you have high-income years or unique tax events, such as selling a business. Many donors also use a “bunching” strategy – contributing several years’ worth of gifts to a donor advised fund in one year for a larger, itemized deduction while taking the standard deduction in alternate years and recommending annual distributions from their donor advised fund to nonprofits.

4. Lower Costs and Less Administrative Burden

Unlike private foundations, donor advised funds do not require separate tax filings, and administrative fees are typically modest. At MCF, these fees flow back into the community, helping strengthen local nonprofits while supporting your giving.

5. A Tool for Reliable Impact

Donor advised funds consistently channel billions of dollars to nonprofits. In 2023, donors across the country recommended $54.8 billion in grants, maintaining strong distribution rates despite a dip in contributions (National Philanthropic Trust). This shows the sustained philanthropic impact donor advised funds make possible.

6. Privacy and Legacy Planning

Donor advised funds offer flexibility in how you give. You can recommend grants in your name, in the name of your fund or anonymously. You can also name successors to carry forward your philanthropic values, or create a succession plan that guides giving from your fund to support your favorite nonprofit organizations or causes long into the future. Additionally, you can name your donor advised fund as a beneficiary of your estate, increasing the impact of your giving.

A Smart, Flexible Tool for Giving

Whether you want to streamline your charitable giving, take advantage of tax benefits, or create a legacy of generosity, a donor advised fund can be the right tool. With their continued growth nationwide and the flexibility they offer, donor advised funds offer a simple, practical way to facilitate your giving to the causes that matter most to you.

As always, everyone’s tax situation is unique, and we encourage you to consult your own tax advisor before implementing any tax or philanthropic planning strategy.